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The Knot: An IPO Bargain? Not!

It is rare for individual investors to get an IPO at the offering price. But when this happens, the rewards can be immediate -- especially with such moonshots as Juniper Networks (JNPR) , RedHat (RHAT) and so on.

Suppose an IPO does not shoot-up on the first day? Is this a way to get a bargain? Well, in most cases, this is not the case.

I think this applies to an IPO from last week called The Knot (YHOO) . The offering price was $10 and climbed to $15 on the first day. Although it was a nice gain, it still fell short of most IPOs for the past few weeks. Now, the stock is trading for $12-7/8.

As the name implies, The Knot is a wedding site. In fact, it has AOL as a strategic investor, as well as QVC.

The site is great, with massive amounts of content and e-commerce. It is a one-stop shop for planning one of the most important events in a person's life. There are about 13,000 local vendors (from 52 markets across the U.S.); a searchable database for bridal gowns with 15,000 images (from 140 bridal designers); 45 weekly chats; interactive tools for planning a wedding; an online registry (more than 10,000 gifts); and even honeymoon travel packages.

No question, the wedding industry is extensive. About 2.4 million couples get married every year in the U.S. The total amount spent per year? A cool $45 billion.

But looking at the metrics, the performance of The Knot has not been tremendous. Page views in September were 15.4 million, compared to 2.5 million in December 1998. There are 395,000 couples enrolled as members. There are about 1,000 enrolling every day.

Also, revenues have not been strong, going from $826,000 in the first nine months of 1998 to the $2.6 million in the same period in 1999.

The company raised a small amount of cash in its IPO, about $32.5 million. Unfortunately, the company has been burning cash at rapid rate. In 1998, the amount was $1.5 million and so far in 1999, $6 million.

But there are problems. First of all, a wedding is a one-time event (even with the high divorce rate, weddings are not a common thing for people). Thus, a wedding site must constantly replenish its customer base.

The competition is intense. The Knot must contend with a myriad of sites, such as the Wedding Channel and Event411.com. There is also traditional competition, such as from magazines like Modern Bride.

Finally, many retailers will find it more beneficial to have their own online registries.

Yes, The Knot is perhaps the strongest online wedding company. Unfortunately, this is probably not enough. So while the current valuation seems low, it will probably continue to be low.


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